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January 2011
Donít Lie, Really
By Gary Smith

     A wholesaler found out that it does not pay to lie about customer satisfaction. The customer, a retail clothing chain, sued the wholesaler alleging a violation of the Lanham Act. The wholesaler advertised that the retail clothing chain was a satisfied customer. In fact, the wholesaler had sold counterfeit products to the chain. The chain stopped doing business with the wholesaler as a result.

     The claims by the customer against the wholesaler included registered trademark infringement, false endorsement and unfair competition. The trademark infringement and false endorsement claims seem obvious. The Second Circuit found that the wholesalerís use of the chainís trademark in connection with advertising its services was sufficient to support those claims.

     The claim for unfair competition is a little harder to follow. The wholesaler and chain are not competitors. Also, the chain does not own the trademarks associated with the counterfeit products. However, the court considered that the chain could be harmed by the sale of counterfeit products to other retailers. The counterfeit products could be sold for lower prices than the real products which could hurt the chainís business and, potentially, damage the chainís reputation. However, the court did recognize that any damages would be hard to prove.

     Content provided by Wishart, Norris, Henninger & Pittman, P.A., which partners with owners of closely-held businesses to provide comprehensive legal services in all areas of business, tax, estate planning, succession planning, purchases and sales of businesses, real estate, family law, and litigation. For more information, contact Robert Norris at 704-364-0010 or visit www.wnhplaw.com.

Gary Smith is an attorney at Wishart, Norris, Henninger, P.A.
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